Published 4:00 am, Wednesday, August 16, 2000

Complaining it has been unjustly maligned, the U.S. Department of Justice has asked a federal judge in San Francisco to delete sharp criticisms of the department in his July antitrust ruling on the sale of The Chronicle to the Hearst Corp.

The complaint from the Justice Department was prompted by scathing comments in U.S. District Judge Vaughn Walker's decision allowing Hearst to acquire The Chronicle and to give the Examiner -- along with a $66 million subsidy -- to the Fang family, publishers of the San Francisco Independent.

In his ruling Walker implied that Justice Department officials caved in to political pressure from Mayor Willie Brown and Senator Dianne Feinstein in approving the two deals. The judge went so far as to characterize the department's actions as "political favoritism masquerading as law enforcement."

The criticisms clearly hit a nerve in Washington and prompted a five-page letter of protest from Joel Klein, head of the department's antitrust section.

"Absolutely no political considerations -- nor any factors beyond enforcing the law -- influenced any aspect of the department's work," said Klein in his letter to Walker, which was dated August 10 but released by the judge only yesterday.

In a brief response to the Justice Department, Walker wrote yesterday that he would "entertain" a formal motion by the department to reopen the case or to reconsider or change his findings.

But Walker noted that he had given the department two opportunities to intervene in the past and they declined. He added that the department had "misread portions of the decision."

In his letter to Walker, Klein wrote that a team of highly experienced "career" attorneys and economists, some with more than 20 years of experience in newspaper antitrust issues, thoroughly investigated The Chronicle sale because it raised serious and complicated legal questions.

"Contrary to the apparent suggestion in the court's opinion," Klein said, "it is wholly unremarkable that the mayor of San Francisco expressed concern to Attorney General Janet Reno about the merger of The Chronicle and the Examiner."

"The department routinely receives unsolicited expressions of concern from elected officials and other concerned citizens. But such communications do not determine the outcome of our investigations; only the law and the facts do."

Klein also laid out much more of the department's legal thinking on the antitrust issues involved in the merger than were included in two letters the department sent Walker in July in response to questions the judge had asked.

Those terse letters clearly frustrated Walker who wanted to know why the department held up The Chronicle sale for seven months. He invited the department to intervene as a party or provide a full explanation of its position in a "friend of the court" brief.

The department declined both requests, opting for short letters instead.

"Just as the court cannot discern the legal basis of the (department's) opposition to Hearst's acquisition of The Chronicle," Walker said in his July decision, "it is unable to find any principled reason for the (department's) apparent faith in the competitive merits of the Fang transaction."

But Klein said that "any suggestion that we supported favorable treatment for (the Fangs) is unfounded."

"For what its worth, I never knew of any purported relationship between Mr. Ted Fang and Mayor Brown until I read it in (your) opinion. Hearst did not seek or obtain the department's concurrence in that sale before executing its contract with (the Fangs)."

Klein added that the department's major concern was preserving newspaper competition in San Francisco and that its lawyers felt that Hearst needed to sell sufficient assets of the Examiner in order to make that happen.

"Much of the department's concern of competitive harm arose from the possibility that the Examiner might compete as a stand alone newspaper at the end of (it's joint operating agreement with The Chronicle) in 2005."

"We never required the parties offer to sell the full JOA interest," he said, but gave Hearst an opportunity to persuade the department of an alternative that would provide an "equivalent market test of whether the Examiner would be viable outside the JOA."

"Because this sale of the Examiner (to the Fangs) provided an immediate opportunity for competition between two independent daily newspapers in the city of San Francisco -- the geographic area that was the primary focus of our investigation -- we decided to terminate our investigation."

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"In sum, there is no basis for the criticism of the Department of Justice contained in the court's July 27 opinion," Klein said. "I therefore request the court to vacate all portions of the opinion that contain any statements about the Department of Justice's motives or any suggestions of political influence."

Klein could not be reached yesterday for a response to the judge's offer to intervene to reopen the case.

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